Why you need float

September 17, 2012 — nicoleandmaggie

Probably the biggest use of our emergency fund has been as float for things that are going to be reimbursed. I put business expenses such as travel on my credit card and then get reimbursed a few months later. Having the emergency fund means that I don’t have to pay credit card interest on that money while I’m waiting for the university to reimburse me.

I’ve also had to use the emergency fund when someone has screwed up on payroll. Sometimes it takes a while to get paid… you get paid eventually but a paperwork error could mean you have to wait two weeks or a month or even longer until you get the check you were supposed to get. Or when the credit card company screws up and direct debits you twice for the same month. (Grr.)

Back in graduate school that use of the emergency fund was even more necessary as such expenses were a much larger portion of my income. Income has thankfully since gone up much more than my reimbursable expenses and occasional paperwork catastrophes, but I still shouldn’t lock too much away each month.

Having such a fund is probably most important if you don’t have access to the relatively cheap credit of credit cards. DH’s relatives have been having trouble getting the Pell grant to pay for textbooks. It would be easy for us to have them buy the books at the student store and have us reimburse them for receipts… except they don’t have the spare $100 or $200 to float. So if we do end up buying the textbooks we’ll have to order them directly online and make it an even longer time before Relative1 gets her required texts. (3 weeks without already…)

They live in a state with tight controls on payday lending. This is a good and a bad thing… it means that they can’t borrow money at a high interest rate to use in place of an emergency fund in these situations. Probably overall a good thing for this specific family.

How often do you use (or wish you could use) your emergency fund to temporarily fund things while you’re waiting for a reimbursement or for someone to fix up a snafu? Any good stories?

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42 Responses to “Why you need float”

I have never used my efund for float because I would always spend down my balance. I did this for a couple years before i realized i needed to make my efund less accessible. (ie, not have a checkbook tied to it). My real efund took about 3 years to build and thankfully we haven’t had a real emergency so it has been untouched for 10 years now. I consider float, the extra you keep in checking a different thing. My budget does vary quite a bit month to month so I keep an extra $2k ish in my account for those months where those annual insurance bills or taxes come due. If I were really organized I would have a separate account for that stuff but I don’t.

Perhaps PF blogs tell you to have a separate account for those irregular, fixed expenses. But you’re obviously disciplined enough to not spend the extra cushion in your checking, so I’m not sure it really matters. I like the idea of lots of little accounts in theory. In practice, I’d rather just have a big sum of money that I know I’ll allocate in certain ways.

Three weeks without textbooks is a long time, too long. Can you not lend them the money with a check and let them repay you? It may be this way all places now, but a junior college allows students to get books and then gets it from the financial aid check. Are you sure these relatives know how things work and with whom to talk? I always had to have the financial aid cash in hand/check to buy books, but it seems things have changed or at least are different at the junior college here.

The financial aid people keep going back and forth on whether or not she has enough money. I imagine if there’s any irregularity it’s the financial aid people not the relatives, as they live in an area where many people are not … competent.

Did I say all people are not competent? No. I said many people. (Many doesn’t even mean most, although it is more than some.) And if you listened to the stories the relatives tell, you would agree. There are many people who are not competent at their jobs. It is just a fact. There are also folks who are competent at their jobs in the area, but many are not. There’s also a lot of meth and not very much access to education in the area. Industries are leaving and younger folks do too if they can. The ones who can’t stay behind.

Seriously, this is a place where the one auto shop in town puts motor oil in for any fluid that needs replacing (and punctured a relative’s gas tank without noticing). Where a nurse didn’t realize that the dose of medication she was about to give a patient was 1000x the recommended dose because she’d mistyped on the calculator. Paramedics are too busy having sex in the back of the ambulance to respond to emergency calls in a timely fashion. Where the stories we hear about the local construction people make us concerned about going into public buildings. Where a boss acknowledges that one of his employees is stealing from the other employees (and he knows which one) and does nothing about it. And, where, apparently they can’t get Pell grant information figured out until 4 weeks into the semester despite assuring people multiple times in advance that things are figured out, just moving slowly, not that forms have been lost or items miscalculated etc. I can count many people who are not competent at their jobs. That’s not even including the stories we hear about how people got into trouble with the law.

Of course, the stories we hear about that town are nothing compared to the Twin Peaks like experience one of the relatives had doing his job recently in an even smaller town even further in the middle of nowhere. Boy howdy, those folks were bizarre. (And he probably met every single person who lived in that area… very odd.)

So to summarize: many is not all, and certainly is not an entire population. However, a statement about many people can be true, even if it is not true for an entire population.

I’m pretty tight with money and able to manage it well in my head, so the float works really well for me. I did learn the hard way to follow my mom’s advice, and I (almost) always keep a cushion of $1k in my checking account for weird things like a check being cashed 6-12 months later. My last semester of college, a professor waited until the end of the course to cash the checks for all our travel expenses, and that was a costly bounce at a time when I didn’t have float or cushion.

I wouldn’t say I use my efund, per se, but I definitely wait around for stuff. I work a few intermittent jobs for the extra pocket money, and it might take a month or more before I get paid for that. Sometimes, I’ll spend that money right away (like work on a Saturday and go buy some new clothes on Sunday), so it is nice to have the cushion in my account. But it’s really just mind games for me, as I live below my means anyway. I could buy stuff with my normal paycheck money, but I justify splurges by making the intermittent money.

Funny thing — I am good with float, but my dad is not quite as good. And he has a funny thing about not buying my mom presents out of their money but instead out of his work reimbursements. His work reimburses regularly, but he only fills out his reports quarterly. Even in high school, I would sometimes pay his credit card bill and then get reimbursed by him when he got his check back. That was always interesting. I liked being able to help out, and there was never a question of not being paid back. My parents aren’t bad with money, but it did encourage me to be even more on the ball.

After a car accident, I was able to use my emergency fund to buy a new (used) car while I waited for the check from the insurance company. This was very useful, as I got a terrific deal from a private seller on Craigslist for the car I wanted. This particular make and model doesn’t come up for sale all that often and, having extremely low miles and being well-priced, surely wouldn’t have been there a week later. Had I not been able to jump, I’m pretty sure I would’ve paid much more for a replacement car — a car, unfortunately, being a necessity in my area. By the time the insurance check arrived I was already back on the road in the new car, which I actually like better than my old one.

I use mine all the time for reimburseable expenses. Since we travel, I can end up with a few thousand on my credit card tht rapidly approaches the amount of my total monthly take-home pay. I still have months where I’ve tried to pay a bit too much toward my student loan that month, and then have to pay off some plane tickets, and then realize I’m not going to get my reimbursement check for another week or two and I get a bit nervous, but I’m just building up my cash reserve a bit higher to avoid that.

My (current) employer provides (some, of whom I’m one) employees with a business card (the employer’s credit card, in effect), making reimbursement a non-issue. I try to make sure to pay for conference registrations, etc., directly for graduate students (i.e. on my employer’s card), so they don’t have to wait either.

Not much float around here; the occasional medical bill, reimbursed through flex (but that system is fast, for me).

I do have a good story though: ages ago, in grad school, I had a stipend I thought was taxable (in retrospect this was likely wrong, but oh well, I’m a tax-and-spend liberal …). So one year I prepared my return and dropped it in the mail 4/15 — state and federal, complete with checks to each (in retrospect, if I was right I owed anything it’s possible I should also have been paying estimated amounts, which I didn’t, but that was honest ignorance and actually the amount due may not have been large enough, I’m not even sure.).

Then I realized I hadn’t. stamped. the. envelopes.

I reprinted the returns, wrote the checks, stamped the envelopes, and dropped THOSE in the mail, also 4/15.

The unstamped federal return got returned to me by USPS. The unstamped state one did not. The state cashed both checks. I sent a letter explaining what had happened and never heard back. Around January of the following year I sent another letter again explaining what had happened and stating that I planned to deduct from this year’s bill the amount overpaid last year. That elicited almost immediately a response telling me NOT to DO THAT. It also elicited a refund (of the overpayment), not quite as rapidly, but reasonably promptly.

Back when I traveled more for work, that was my primary use case of my emergency fund as well. My expense reports could be up to $5k, so having a personal float was super important. I still remember my first trip costing me $3k upfront and not being able to reimburse any of it until I came back…a month later. That was terrifying because I’d had pretty much no warning about the trip or the cost of it and my entire emergency fund was at ING. After that trip, I started keeping the first $5k of my emergency fund at the credit union with my checking account and things went a lot more smoothly for the next trip.

Now, my business trips are a lot shorter and thus, less expensive, and I just pay for them out of my travel budget and let the reimbursements go back there and it’s okay to float them in my checking account like that since I have the first 2 months of my emergency fund there.

If I had access to the amount of credit pretty much anyone else I know does, I probably would keep a smaller float than I do, but I don’t have the capability of putting unexpected expenses on a credit card and then paying it off after pay day.

This is a perfectly timed post. I am so so glad that I have my float account, and so glad that it is linked to my checking account!

Yesterday my credit cards – not my wallet (a pricy one too) or my bag (also pricy) – were stolen when I was at the gym. It was by a pro, because they picked my locker lock, left my bag/wallet so I wouldn’t notice as quickly, and then ran to CVS where they spend over $300 on each card (so I think the CVS person must have been in on it – who buys $1000 worth of stuff with 3 different cards on one visit!). Anyway, they took my 2 credit cards (one I never use, and the other has all our monthly charges) and my debit card. So now I have only the $15 which they robber graciously left me. It will take ~5 days for my bank to return the money back into my checking account (which is now empty), but luckily my ING account is linked to my checking account, so I can transfer some funds and write a check to myself to cover me until all my new cards come in.

I try and keep 10K in the float at all times. This gets dipped into only on rare occasions, like having to pay taxes when I’ve screwed up the estimated, waiting to be reimbursed for travel, or being robbed of my credit cards.

This is why #2 never uses debit cards. If stolen, they take REAL MONEY, which you have to wait to get back (if ever). I got my credit card stolen on a business trip (grrr, texas!) and didn’t have to pay anything on the fraudulent charges. Debit cards make me nervous.

If I know I can pay it right away (like go home that day and pay it) I’ll put things on our credit card for the points. When we learned restaurants earned double points we put any eating out on there. I’d budget the money in advance and have it sitting in savings so it doesn’t get spent, and then when we go out to eat, we can get the points out of it. (points allowed us to buy a ton of music–important in this household–for a couple bucks.) This doesn’t work for those random places that are cash only though. As for efund floating–only if I know for certain that money is coming sooner and not later. Lately though, I try not to touch it at all.

My parents try not to touch their efund, but that is more because it’s taken years for my mom to figure out how to do finances. Mom never used to set aside money for anything, and luckily that was just intuitive for me, because I couldn’t learn by example. Now we talk about different methods of managing money.

No good stories. Just some late paychecks and roommate payments. In the past there have also been travel reimbursements and FSA payments. And maybe other things I’ve forgotten because these situations are no longer at all traumatizing. This floating ability is one of the things that makes me feel the most rich. It really is a fabulous luxury to be able to buy things when you need them or when they are available, even if officially you don’t yet have the allocated money (by using money allocated for something else and then replacing that money).

We need to build our emergency fund up more so we can float more. I’ve been having problems with the Pell grant, too. And my state grant. I have a summer one that still hasn’t been disbursed to me yet. It’s getting really bad. I keep bugging the school to no avail. Did they actually get awarded the Pell Grant? Because if their school is anything like mine, maybe they have something set up with the bookstore where the book gets billed directly to their school account (same account as tuition etc.) You won’t get as much back when the funds finally arrive, but you were going to spend that money on the text anyways.

That sounds about like their set-up. And there were a whole bunch of snafus (each snafu lasting a week!). The Pell grant went through fine with tuition but didn’t work so well with the books. Last I heard they had all but one textbook and were going back and forth with the Pell people about whether or not there were still funds for it. We kept saying we could just buy it, but I don’t think they realize that $50 is not that big a deal for us. (Not chump change, mind you, but something we can easily afford as a one time purchase.)

I keep at least a few thousand in the float fund, and have for years ever since the e-fund was built up and set aside. It’s basically the equivalent of cash flow, and as many months’ worth of expenses as I can build up as possible, so that I never have to worry about being paycheck to paycheck again. In the short term, that’s kind of why I keep cutting big expenses and don’t make small unnecessary purchases. I like having big float. :)

But I also like that I can turn around and help people out, have a meal out, or give a gift, without having to think twice about what that will do to my cash flow for the month or for many months even, because I didn’t go up to the line every single month prior. No big story, just a lot of little choices that are really worth it to me in the long run. My version of fancy cheese. Sometimes it IS cheese. But sometimes it’s getting someone’s electric or someone’s groceries. Or chocolate for a very tearful pregnant friend or flowers for a really lonely person. Whatever.

Working for the Great Desert University, one has no choice but to regard one’s emergency fund as a source of “float.” When the administration decided to outsource payroll to PeopleSoft, the result was a seemingly endless series of snafus that resulted in, among other things, many people not getting paid at all and many getting over paid, with later demands for repayment. Today no one there trusts HR or PeopleSoft to get things right.

The only extent to which I’ve ever treated savings as a kind of “float” fund has been when I’ve bought appliances on those one-year-no-interest deals and paid the bill two weeks before the year elapsed. Now that I’m unemployed, I no longer do that — too much risk that I’ll need the money for some other purpose during that period.